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The Market is Sleeping on Fission Uranium...Should You?

On April 22, nine more assays were released from Fission Uranium's ($FCU:CA)($FCUUF) Patterson Lake South discovery. The strongest assay was from hole PLS14-187, which returned over 102 meters of nearly 6% U308, starting as shallow as 58 meters.

This is the second-best hole to date. All nine holes returned wide intervals of mineralization.

However, with uranium prices at multi-year lows, investors seem a bit unwilling to bid up shares of Fission, making this the perfect contrarian play.

All the catalysts for higher uranium prices, from Chinese and Indian ambitions to the restart of Japan's nukes, are still intact.

So investors have the perfect opportunity here to buy the best uranium deposit the world has seen in years at an extreme discount. I'm expecting this deposit to sell for at least $2.50 per share.

Today, the stock trades for $1.15.

On April 24, early results were released from another 12 holes. All of them intercepted uranium; seven were “off-scale.” Importantly, one of those holes was in the newly identified R1620E zone, meaning more holes will be drilled there... and more uranium found.

Here's a recap of all the progress made during the winter drill program:

Merging of R390E, R585E, R780E, and R945E zones into a single zone referred to as R780E

Expansion of R780E zone along strike to the east by 135m (from line 945E to line 1080E) 1.35

Net increase of >135% in strike length of the R780E zone to 855m from the length defined in 2013

Increase in north-south lateral width of the R780E zone up to 90m on line 780E (from ~40m on line 780E defined in 2013)

Expansion of lateral north-south width of the R1155E zone to ~20m wide

Discovery of a new mineralized zone R1620E with 2 holes located 465m to the east of R1155E zone

I know it can be frustrating to see exceptional news release after exceptional news release... only to watch the stock fall. But investors may want to view it as an opportunity to acquire shares at lower and lower prices.

One of the near-term catalysts to stoke uranium prices is the restart of nuclear reactors in Japan. All of its 70-some reactors have been offline since the Fukushima disaster and 18 of them have applied for restarts.

A ruling in mid-May has delayed those restarts once more, which sent uranium prices to new lows. But the pro-nuclear Abe administration has vowed to press on, with Japan Daily Press noting:

The administration of Prime Minister Shinzo Abe emphasized that they will be sticking to their pro-nuclear policy, despite the slight setback of the court ruling against a restart of one of the currently offline nuclear reactors. Industry Minister Toshimitsu Motegi however said that the restarts would only happen if the operator passes the rigorous safety standards of the regulatory body.

The ruling by the Fukui District Court against Kansai Electric Power, preventing them from restarting operations at the Oi nuclear plant, is seen as a major victory for the anti-nuclear activists in Japan. But Motegi is making it clear that they are not budging from the energy policy which they approved just last month and part of this would be to push for the restart of the nuclear reactors that will meet the “world’s toughest regulatory standards,” enforced by the Nuclear Regulation Authority. He also believes this will not affect the ongoing safety checks at the Sendai plant in Kagoshima Prefecture, operated by Kyushu Electric Power Co. The reactors at the plant are expected to be the first to be approved by the NRA, paving the way for its restart.

And so you wait.

In the meantime, expect more assays from the winter drill program and the upcoming start of the summer program.

In fact, assays were released for another 10 holes — nine in Zone R780E and one in Zone R00E – on May 29.

Naturally, all 10 holes intersected wide intervals of uranium mineralization with six of them finding “substantially high grade.”

The best hole was PLS14-160, which hit 14.74% uranium over ten meters inside of a composite 4.44% over 38 meters.

That is better than world-class.

There are now assays from 40 holes drilled during the winter program. Currently awaiting an additional 52.

According to President, COO, and Chief Geologist Ross McElroy:

"Another round of superb growth confirmed at PLS. We are seeing some very high grades and wide intervals, as evidenced by holes such as PLS14-160 and PLS14-171. We have considerable mineralization in all ten holes and, just as importantly, mineralization starts at depths as shallow as 50.0m. We continue to be very pleased with the results of our aggressive winter program."

Still, the fundamentals of the uranium market are standing in the way of rapid share price appreciation that would normally be associated with results like these.

CEO Dev Randhawa had some comments on this and few other things in a new CEO Corner blog posted on Tuesday:

May 27, 2014

Cameco’s Millennium Mine project is on hold and with it, 50m lbs of uranium. Specifically, the uranium industry’s largest producer has withdrawn its application to build and operate the new underground uranium mine in northern Saskatchewan. The company can (and no doubt will) ask the Canadian Nuclear Safety Commission to consider its license application at a later date but for now the mine will not be moving forward.

Any delay in future production is good for Fission. This is particularly so when the delay relates to underground mines which are expensive to build and expensive to run. In comparison, PLS has the type of depths normally associated with an open pit mine. Measured against underground mining, open pit operations are quick to build, cost-effective to operate and have the ability to turn production up and down as needed. In other words, when it comes time to increase production capability, open pit mines are going to be very attractive to producers.

It’s also worth noting that Cameco’s profit is up for Q1, 2014. That’s not a coincidence. Putting a costly future mine on hold is about positioning themselves for when the fundamentals of the nuclear sector push the uranium market upwards. I’ll be blogging more on this subject shortly but for now let me reiterate two points: Japan is taking longer to restart their reactors than many expected but restart they will. Also, the number of reactors under construction and the even larger number currently going through the planning and proposal stages means we are ultimately looking at a net growth in reactors over the long term.

In the meantime, Fission’s technical team is continuing to prep for the upcoming summer drill program. We also still have a lot of assays to come from our highly successful winter program, which connected five zones and extended the strike length to 2.24km, so keep a sharp eye out for news as the results come back from the lab.

It's certainly undervalued at $35 or $40 uranium, which we had just a year ago.

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